Gold and equities each have distinct characteristics, and the decision between the two is not about choosing one over the other but rather about strategically allocating to both to mitigate risk. Historically, both asset classes have delivered returns, but their performance cycles often vary, underscoring the importance of diversification for a balanced risk-return profile.
Data show that while Nifty has outperformed MCX gold over the last 20 years (12.7 percent vs 12.0 percent CAGR) and the past decade (12.8 percent vs 8.9 percent), gold has outpaced Nifty in the last five years, offering a 16.2 percent return compared to Nifty’s 14.0 percent. Notably, gold's strong performance during market crises, such as the 2008 financial meltdown, highlights its value as a defensive asset during turbulent times.
Given the current market scenario, the key question arises: will gold outperform Nifty in 2024, and how should investors adjust their portfolios? Should one reduce equity exposure in favour of gold?
Ajit Mishra emphasised that equities and gold have shown strong momentum in 2023, a trend likely to continue in 2024. The US Federal Reserve's expected rate cut cycle could benefit both asset classes, providing a favourable environment for equities and gold alike. While equities may continue to see robust domestic inflows, gold could gain from a weakening US dollar, falling bond yields, and ongoing geopolitical tensions.
Mishra suggested that investors maintain a balanced portfolio, incorporating a mix of equities, debt, and gold, aligned with their risk tolerance. He highlighted that gold can act as a hedge in uncertain times, making it an essential part of any well-diversified portfolio.
Sujit Modi of Share.Market noted that while the Nifty 50 gained around 17 percent, gold has risen by approximately 16 percent on a rolling futures basis. The improved performance of gold this year, in contrast to previous years, can be largely attributed to global tensions, increased gold purchases by major central banks such as China, and ongoing economic uncertainty in the US and Europe.
For long-term investors, the brokerage emphasised that the outperformance of one asset class over another should be less of a focus. Instead, decisions should be based on maintaining appropriate asset allocation. If an investor's equity exposure exceeds their risk tolerance, it may be advisable to reduce equity holdings and consider reallocating to gold. Experts often recommend an ideal allocation of 5 percent to 10 percent to gold within a portfolio, so investors should adjust accordingly when deciding to buy or sell.
Trivesh D pointed out that gold tends to perform well during periods of uncertainty, acting as a safe-haven asset. However, if global tensions stabilise and no major crises emerge, gold's performance may be limited in the near term. On the other hand, equities benefit from economic growth and corporate performance, which could lead Nifty to outperform.
For most investors, making a drastic shift from equities to gold is unnecessary unless they anticipate significant instability ahead. Gold should serve as a hedge, but equities generally offer higher growth potential. Trivesh advised maintaining a diversified approach with a balanced allocation to both asset classes.
Aamir Makda highlighted that the Federal Reserve's monetary policy will play a critical role in shaping gold prices in 2024. A potential rate cut by the Fed could increase gold's appeal. He advised investors to monitor interest rate decisions closely and adjust their portfolios accordingly.
Makda noted that both Nifty and gold have performed well post-pandemic. Nifty-50 surged by over 50 percent since 2020, while gold delivered a consistent 15 percent annual price growth. He recommended that investors maintain a diversified portfolio with a suitable mix of gold and equities, particularly amid economic instability or geopolitical tensions.
Shiwani Kumari pointed out that gold typically outperforms equities during periods of high inflation, geopolitical tension, and economic uncertainty. Current concerns about a global economic slowdown and geopolitical risks could continue to support gold’s momentum in the near term. However, as the global economy recovers and corporate earnings improve, equities, particularly Nifty, may see stronger returns.
Kumari suggested maintaining a 10 percent to 15 percent allocation to gold, as it can provide protection in uncertain times. However, she emphasised that the core portfolio for long-term investors should be centred on equities, especially high-quality stocks. With India's economic outlook remaining robust and driven by growth and policy reforms, Nifty is poised to deliver strong performance in the coming years.
The debate over whether gold will outperform Nifty in 2024 comes down to several factors, including economic growth, central bank policies, and geopolitical stability.
While gold offers a hedge against uncertainty, equities remain a key driver of long-term growth. Experts recommend maintaining a well-diversified portfolio that balances both asset classes, with an allocation to gold that ranges between 5 percent to 15 percent, depending on individual risk tolerance and market conditions. By doing so, investors can ensure they are well-positioned to navigate both volatility and opportunity in the year ahead.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.
